Tax Type
Corporation Income Tax
Description
Apportionment Factor; Real Property
Topic
Allocation and Apportionment
Basis of Tax
Taxability of Persons and Transactions
Date Issued
09-21-2001
September 21, 2001
Re: § 58.1-1821 Application: Corporate Income Tax
Dear *****
This will reply to your letter in which you seek correction of the corporate income tax assessments issued to ***** (the "Taxpayer") for the 1994 through 1996 taxable years. I note the assessments have been paid in full. I apologize for the delay in the department's response.
FACTS
The Taxpayer is a manufacturer of tangible personal property with manufacturing facilities in Virginia and other states. The Taxpayer also purchases real property, which you indicate is done on a speculative basis for the purpose of resale.
The Taxpayer excluded this real property from its property apportionment factor for the 1994 through 1996 taxable years. Under audit, the department adjusted the Taxpayer's property factor to include the real property. The Taxpayer contests the adjustment to the property factor, asserting that the real property was not used in its operations, nor was it put to a "business use."
DETERMINATION
Code of Virginia § 58.1-409 provides that property is included in the property factor if it is owned or rented by a taxpayer, used by a taxpayer, and effectively connected with a taxpayer's trade or business within the United States and the income from such trade or business is includable in both Virginia taxable income and federal taxable income. The determinative question is whether the real property at issue is "used" by the Taxpayer and whether it is "effectively connected" with the Taxpayer's trade or business.
In Public Document ("P.D.") 85-37 (2/28/85)(copy enclosed), the department held that Virginia land held by a land holding company for speculation purposes is "used" for purposes of computing the property factor under Code of Virginia § 58.1-409. While the Taxpayer is primarily a manufacturer, the information provided indicates that it is also engaged in the business of real estate speculation. Pursuant to Title 23 of the Virginia Administrative Code ("VAC") 10-120-160(5), a business may have more than one trade or business. Thus, the property at issue was "used" by the Taxpayer in its real estate activities for property factor purposes.
Title 23 VAC 10-120-160 (5) also provides that property is "effectively connected" if it is actually used or available to be used in the taxpayer's trade or business. In this case, the audit papers indicate that portions of the land at issue have been rented or sold on a regular basis. The real property is "effectively connected" to the Taxpayer's real estate speculation business because it is being used by this business.
Accordingly, your request for a refund is denied. If you have any questions regarding this determination, you may contact ***** in the department's Appeals and Rulings Office at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
ARO/20341B
Rulings of the Tax Commissioner